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Sunday, 8 March 2015

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Electric dreams

For several weeks, rumours have been circulating on the Internet that tech giant Apple is planning to build a car. As with all things Apple, it is apparently being done in secrecy. This rumour has worried even established car companies, because Apple has a habit of entering a new industry and disrupting the sales of established players. Apple rival Google, which is already experimenting on driverless cars, could also be having plans to build a driverless electric car. This has become a hot topic at the ongoing Geneva Motor Show.

The traditional motor industry would be foolish to ignore moves by Google and Apple into car technology, says Fiat-Chrysler boss Sergio Marchionne. The chief executive of one of the world's biggest carmakers said the two US companies were “incredibly serious” about their automotive ambitions. He said their move into driverless technology and electric vehicles could be “disruptive” for manufacturers.

But should Apple build a car? Would you like to drive an Apple or Google car? And can Apple really build a car? Apple is said to be building an all-electric car, which should probably be on the roads (at least in the USA/Canada) by 2020.

But one thing is clear. If there is one company that has the financial resources to build a car from scratch, it is Apple. With a market capitalisation of US$ 750 billion, it is worth more than Daimler, Volkswagen, Renault, Peugeot, Fiat Chrysler, Ford and General Motors put together. And Apple is already into cars, through its “connected car” systems and it is also researching into battery technology, which is vital for an all-electric car. They even have a code name for the project called “Titan”.

Newcomer

In case you wonder whether it is possible for a complete newcomer to build a car from the ground up, think of just two words: Tesla and Elon Musk. He built an entirely new car brand from scratch and today, you can see Teslas all over the world, including Sri Lanka. If Tesla can do it, Apple and other companies can do it too.

Will there be a market for an Apple car ? Five years from now, the market for electric vehicles will certainly be bigger, with Government subsides thrown in. Here in Sri Lanka, the duty on electric cars has been reduced to just five percent and many other countries have similar incentives. Apple, with its upmarket image, may just be the car brand for buyers looking for a bit of difference. Moreover, do not forget that there are Apple fanatics who will buy anything with an Apple logo, regardless of the price or functionality. Apple may be able to replicate this magic in the form of a car. But even for Apple, it will not be easy task considering the logistics, regulations, testing, and manufacturing processes involved.

Apple is not the only tech company that has tried its hand at doing something altogether different. Even Apple’s chief competitor Samsung did build cars at one point. The truth is, it is really difficult to take on the established players when you are new to the game, even if you are very good at something else like smartphones.

Smartphones

But there are companies that have succeeded in entering and capturing a completely different product category. Both Apple and Samsung have done exactly that with their smartphones. When these two companies began manufacturing phones, companies like Nokia, Motorola and Blackberry were the big names in the phone business. Today, Samsung and Apple have practically captured the smartphone market to themselves, along with Samsung’s home rival LG, another upstart in the mobile world. Apple might repeat this feat with televisions too - there is talk that it plans to enter the big screen TV business as well in a couple of years.

Lamborghini was making tractors when the chief of rival firm Ferrari challenged it to make a proper sports car. They did make a car - no one even remembers now that Lamborghini was a tractor maker. PayPal was originally envisioned as a cryptography company. Nokia was originally a paper company while Wrigley’s made soap, not chewing gum. Even Colgate, founded in 1806, started making toothpaste only in 1876, having made candles until then. Tiffany made paper products, before becoming an exclusive jeweller immortalised in the hit movie Breakfast at Tiffany’s. Xerox too was a photo paper company, before introducing the photocopiers that are now synonymous with the company’s name. Video game maker Nintendo made playing cards - even its very name means “leave luck to heaven”.

Accidental

Of course, all companies need a little bit of luck to get by and succeed. Many companies and individuals made accidental discoveries that later became their main products. Viagra was envisaged as a heart drug, when researchers at Pfizer found it had a bigger potential (Pfizer sold $288 million worth of the little blue pill in the first quarter of 2013). Even penicillin was an accidental discovery. The microwave was an accidental invention by Raytheon, a weapons contractor. Both fastening system Velcro and non-stick coating Teflon are accidental discoveries. The inventor of Coca Cola was just looking for a headache cure.

Either way, doors open for bigger opportunities if a company is willing to take a risk. Companies such as Apple have luck on their side and are willing to take a risk. Making and marketing a new product is a gamble, but one that could pay off handsomely if that product becomes successful. Apple has done it earlier and perhaps it wants to try its hand at a different industry again. It is just that the car industry is not just another industry. It is extremely difficult for a newcomer to break into the automotive market, given its dynamics, brand loyalties and regulations.

Trends

But the entry of Apple and Google to the automotive industry will be good news for the consumer if they get the pricing right and for the environment, because they are likely to launch non-polluting electric vehicles. That is where the future lies and both companies have a good track record of reading and riding on future trends.

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